NetEase.com, the operator of the popular World of Warcraft online game franchise in China, has been caught in a turf war between two governmental regulators.
On 2 November 2009, the General Administration of Press and Publication (GAPP) issued a notice rejecting an application by NetEase.com for a licence to operate the Burning Crusade expansion of its online game franchise World of Warcraft. The Notice indicated that during the examination and approval process for NetEase.com’s application, NetEase.com was permitted by GAPP to conduct an internal test from 30 July 2009 on the condition that it was free of charge and that NetEase.com would not provide users with any new accounts for registration. However, NetEase.com started to charge its users for providing new accounts on 19 September 2009 without GAPP’s permission, violating regulations which require the launch of online games to be subject to the approval of GAPP. The Notice also required NetEase.com to immediately cease providing new accounts and set out that GAPP would impose the relevant administrative sanction upon the circumstances of the case in accordance with the law, including a request for NetEase.com to terminate any further provision of its internet services.
On the following day, the Ministry of Culture announced that, in issuing the notice, GAPP had overstepped its authority as the Ministry of Culture is the competent authority for approving the launching of online games.
In 2008, the General Office of the State Council issued a ruling that states that the Ministry of Culture is responsible for the relevant industrial planning, design of the industrial base, project construction, exhibitions and trading, and market supervision of animation and online games (except for pre-approval of online publication of online games), whereas GAPP is responsible for the administration of animation publications and for conducting pre-examination and approval for the online publication of game publications. Although this 2008 Ruling allocates responsibility between GAPP and the Ministry of Culture for regulating the online game industry, the practical implementation of this has always been a grey area.
On 7 September 2009, the State Commission Office for Public Sector Reform (which oversees and co-ordinates the responsibilities among the different organs and departments under the State Council) issued a further notice which is intended to clarify the 2008 Ruling. This 2009 Clarification Notice states that the Ministry of Culture is the competent authority for administration of animation and online games, while GAPP is responsible for pre-approving the publication of online games. On the basis of this 2009 Clarification Notice, the Ministry of Culture further announced that GAPP only has authority over “publications” and that online games are not “publications”. Therefore, once a game product is launched online, it should be regulated by the Ministry of Culture. The Ministry of Culture also interpreted “publication” as meaning something which is distributed by way of physical media. For example, games distributed by CD are publications but online games available by download only are not, and therefore are not regulated by GAPP.
GAPP responded very quickly and issued its own notice on 28 November 2009 which explained GAPP’s authority over online games, claiming that the provision of online game contents via the internet to the public for playing or downloading amounts to online games publishing, and that no such games can be launched without first obtaining pre-approval from GAPP.
This battle between two Chinese Government regulators has gained much attention in the online game industry. Some commentators have noted that, as with many other industries, the regulation of online games lags behind advancements in industry.
The final decision maker in this turf war will be the State Council or the State Commission Office for Public Sector Reform. At the time of writing, there had been no official announcement on the extent to which the State Council has intervened.
On 12 February 2010, GAPP published a notice on its official website announcing that, as NetEase.com has taken necessary rectification measures in accordance with the requirements GAPP, GAPP now grants its approval on the operation of the online game World of Warcraft by NetEase.com. We believe the GAPP notice should end this turf war.
Irrespective of the final outcome, this turf war between GAPP and the Ministry of Culture makes clear the immediate need for clearer regulation which explicitly defines the allocation of responsibilities and scope of authority between different Government regulators in the online games industry.